I believe this is biology's century. I've covered science and medicine for Forbes from the Human Genome Project through Vioxx to the blossoming DNA technology changing the world today.
Email me, follow me on Twitter, circle me onGoogle Plus, or subscribe to my Facebook page.

How To Charge $1.6 Million For a New Drug And Get Away With It

Call it a warning shot: last week an Indian patent court shocked the $600 billion global pharmaceutical business by ordering Bayer, the German health care giant, to allow a tiny Indian generic drug company to sell cheap copies of the blockbuster cancer drug Nexavar – even though everyone agrees that the drug is protected by a patent. Instead, the court decided that Bayer had an obligation to make Nexavar available to people in India who needed it.

The Indian decision is “arbitrary,” says Sapna Palla, a lawyer at Kaye Scholer who represents pharmaceutical firms in patent litigation. Why Nexavar, and not any other high-priced drug? She says it “undermines the innovative pharmaceutical industry in India in the long run” and predicts the decision will “stymie foreign investment in India” because it will add to doubts about the Indian patent system. (Bayer contests the decision, too.)

It’s a basic tenet of the pharmaceutical business that companies have a right to charge high prices for new, innovative medicines. Because more than 90% of experimental drugs fail to be proven safe or effective, it’s necessary for medicines to generate billions of dollars in sales in order to entice investors and companies to sink money into research. Patent protection is not the ideal way to fund medical research, but nobody has found anything better.

But in this case, the Indian patent court and Natco Pharmaceuticals, which brought the case, have a point. The many thousands of Indian patients suffering from kidney or liver cancer could not get their hands on Nexavar. Only a few percent of them took it.

Knowledge Ecology International, a group that campaigns for people in developing world to have better access to new medicines, says Nexavar was priced at $69,000 for a year of treatment, 41 times the per capita income in India. For comparison, a drug that cost 41 times the U.S. per capita income would cost $1.6 million. The Natco price? $177.

In the U.S., Nexavar actually costs even more in real dollars. The average liver cancer patient would pay $80,000 for a ten-month course if he were paying the wholesale acquisition cost of Nexavar; kidney cancer patients pay $96,000 a year. Except, of course, that they don’t pay. Insurers cover much of the cost. Bayer and partner Onyx Pharmaceutical, which split sales duties in the U.S., have a program to make sure that eligible patients aren’t responsible for more than $100 of copayment. They also have programs to make sure that uninsured patients have access to the drug.

Even for mass-market drugs, it is increasingly the reality in the U.S. that the patient doesn’t pay. Insured patients can get $160 worth of branded Lipitor for $4, with maker Pfizer picking up the rest of the co-payment. Meanwhile, Pfizer is negotiating with health plans to convince them to buy its Lipitor over the $120-a-month generic version.

This is even more true for the specialty medicines, like cancer drugs, that are the drug industry’s stock-in-trade these days. The customer is not the patient but the insurance company or government picking up the check. That’s why drug companies refer to governments and insurers as “the payors.”

As a result drug companies can price new medicines at a cost that no individual person could pay. I count ten medicines that have an average per patient cost of more than $200,000 per patient per year, including the treatments made by Sanofi’s Genzyme unit, Biomarin, Alexion Pharmaceuticals, and now Vertex’s new cystic fibrosis drug, Kalydeco — the first medicine ever to work on the genetic defect that causes that lung disease, but only for a select few that have a particular mutation.

It’s an open question, but it’s possible that it’s better to have $300,000 drugs that are highly effective than $3,000 drugs that aren’t . All these medicines are priced as they are because the Payors will pay. Alexion, whose Soliris treats rare and lethal disorders that destroy blood cells or damage the kidneys. “Even at a $400,000+ per year price point, they manage to justify the value of their medicine for the small patient populations with the relevant diseases,” writes Sanford C. Bernstein analyst Geoffrey Porges. Proof? Alexion’s stock has been outperforming Apple’s. That will get a lot more companies interested in rare diseases. We’re still not at $1.6 million per patient per year, the per capita equivalent of Bayer’s price in India, but there is no reason to think we can’t get there.

Post Your Comment

Post Your Reply

Forbes writers have the ability to call out member comments they find particularly interesting. Called-out comments are highlighted across the Forbes network. You'll be notified if your comment is called out.

Comments

So you think that a sick person has a right to a medicine that may extend his life without fair compensation to inventor/maker? I think not some freeloaders may think they are entitled at someone else’s expense. So I should provide him a yacht too? China, India, Sudan and other nations have become nations of thieves. They steal the intellectial property of others without compensation. They force foreign nations to more less give away 51% of their business to favored political cronies of the crooks that run those nations. I do not exempt Europe which controls the price of forein companies products so that they can be bought by a local benefactor, repackaged and sold for a profit elsewhere without sharing the profit with the inventor/maker. Canada and France are two of those countries and their governments are aiding and abetting thievery.

The inventor/maker could always choose not to do business there. The executives running these companies should be smart enough to realize what they are getting themselves into when the go into a foreign country.

Business owners don’t have a right to an intellectual property monopoly. That was granted by laws, it can be taken away by laws. The intellectual property regimes of the last thirty years have become so overblown that they are toxic impediments to trade.

Also, if you don’t understand the difference between a yacht and live-saving medicine, your reason has been eclipsed by ideology.

Another way to think about it is, why can’t the inventor/maker extend someone’s LIFE by providing medicine that provides compensation for the invention, as well as within financial reach of the patients in a target country? Yes, R&D is expensive, but if a generic brand can be manufactured(at profit! not counting R&D)for less than 0.3% of the original price($96,000 vs $177), it sure seems like there would be at least A LITTLE wiggle room. These people aren’t asking for yachts. I’m pretty sure it’s the executives that have all the yachts. They are just asking for more reasonable rates to extend their lives, without forfeiting the very life they extended to repayment. To put this into perspective, one average luxury yacht priced at $2 million (I’m assuming a big-name pharmaceutical executive won’t own a cabin cruiser) can fund approximately 10,000 people with medicine for a year. So they are definitely not asking for a whole yacht. Just 0.01% of one.

I noted the difference, however, what keeps this little generic company from selling its products outside India. Do you really think that the Indian government would do so? No it is pure theft but its not just the third world countries doing so. Think Canada, Great Britain, France, etc. Whether the country forces the producer to sell its drugs below market price and then allows its companies to repackage and sell it outside the country or the country forces a license for a generic version, it effect is the same. It is theft no matter how they otherwise label it.

>So you think that a sick person has a right to a medicine that may extend his life without fair compensation to inventor/maker? I think not some freeloaders may think they are entitled at someone else’s expense.

The real problem here, as usual, is government regulation and the out of control legal system that de-emphasizes personal responsibility. The cost of drug development would drop like a rock if we made the lawyers work at McDonalds and quit trying to regulate people’s freedom of choice.

Sure, it costs a lot to create a drug, and so they charge a lot for them. The best answer — obviously — is to make it less expensive to create the drug in the first place. And since a HUGE proportion of that cost is consequent to government regulation, that same regulation that prevents people from trying drugs even when they are only days or weeks from death…

So you’re ok if the drugs don’t work at all and are dangerous? Because that was the situation before congress demanded that drugs be effective. One reason that many drugs are as expensive as they are is because if you’re an insurer or a government they are worth the cost. But that same cost is just unpayable for an uninsured individual.

Or a realist. If you start saying that “hey, this drug could save this persons life, you have to give it to them for free” then yeah, obviously that’s great in the short term, but then what happens? The companies stop researching new drugs, which means that less drugs are invented, which means that, down the road, all the lives that would have been saved by the new drugs are lost. So you end up killing more people. I wish there was an “everybody wins” solution, but so far nobody has come up with one.

Matthew, I am ok with having to do the research that determines whether I think the drug may help me or not, rather than congress deciding for me — and either getting it wrong, or delaying treatment under the aegis of “caution” until past time I am DEAD, because that’s just ludicrous. This puts the responsibility on me. So I need to do it right, just as I need to balance my checkbook right. This is called being responsible for your own welfare and the decisions that affect it, and I am 100% ok with it.

What you are advocating here (and yes, I know it’s status quo) is the government taking these decisions from the citizens, which I contend is anti-liberty, anti-freedom, dishonorable and furthermore can be shown to be dangerous to the point of causing death if you are one of these people who could benefit from a drug that is not yet available as it crawls through the morass of legal red tape.

No. I don’t want the government making decisions for me. Too often, they get the decisions wrong — I could list examples for pages and pages. From wars to bungling like the Tock’s Island Dam project to the life-crushing idiocy that is the drug war, the government has not demonstrated that it can do a better job than I can making my own decisions.

To your other point: Drugs can be expensive for several reasons. Some because they are legitimately hard to create. And in that case, the market will set the price and patents will at least somewhat protect the inventor. Other drugs, however — most, even — are only expensive because of the legal and regulatory tangles. Here, the market isn’t setting the price — the price is artificially raised — hugely — by hoop-jumping that will not affect the drug, only its availability.

Yes, I absolutely want the freedom to choose what I ingest, or don’t. And I want the responsibility that comes with it: I need to look into the options available and see what I think is best. And for that responsibility, I am *MORE* than willing to trade the (cough) “opportunity” to enter into a lawsuit against a company or a doctor.

Today, with the Internet, there is no excuse left to say “but I didn’t *KNOW!* Get out there, search, make your choices, and live with them. Yes, things can happen to you. That’s life. You can always be maximally risk-averse, and stay home cowering under a heap of pillows.

How many times have you seen “works in monkeys/mice etc., but is years away from human trials”? How many people do you think might raise their hands if the drug company was free to say “hey, here’s a drug we think might treat X, we’ll pay you Y to try it, but it’s risky. Of course we’ll treat as best we can for anything that happens”? I know there have been many drugs I would have been willing to try. Memory drugs, anti-senescence drugs, the list is long. Doing so could very well be considered a service to humanity, especially if it gets a drug to market that much sooner. It would be an honorable thing to do.

And what of the poor slob dying of X, where the drug Y can’t be made available to them until after they die, specifically because of the red tape? These regulations, delays and costs kill people: directly and without any doubt.

Deregulate the medical industry and you’ll immediately see a faster, leaner, more cost-competitive industry from top to bottom. And you’ll get a great deal of freedom and responsibility back. Unless, of course, you don’t want that. Me, I moved out of my parents home decades ago. I am very much ready to take responsibility for myself. How about you?

“What if pharmaceutical companies can bring themselves to stop just short of berserk usury?”

I don’t think you even remotely understand how expensive it is to develop a drug. You need to understand that first; then you need to determine what parts of that cost can be sensibly eliminated, and then you need to stand up for said elimination.

It’s not just a matter of mixing random stuff in a jar. Drug creation is *difficult*.

The primary thing that could be addressed is over-regulation; this is not related to drug efficacy, though there are those who will try to convince you otherwise in order to shuck off their personal responsibility on others.

Regulation does not prevent quackery. Colloidal silver, fake flu remedies, these things will always exist. But you can do just the tiniest amount of research and avoid them just as easily as you can avoid becoming a Xenu-consuming Scientologist or a life-ruining drug warrior. Responsibility is nothing to fear. Fear ignorance: that’s the real enemy all through life.